Houston's commercial real estate market experienced significant growth in the second quarter of 2022 compared to Q1. Rents have risen across most property types, indicating a favorable market for investors.
General Market Overview
In the second quarter of 2022, the Houston commercial real estate market continued its rebound from the impact of the COVID-19 pandemic. Average rents increased by 2.5%, with the office market experiencing the strongest growth at 3.5%. The industrial and retail markets also saw positive growth, with rents increasing by 3% and 3.5% respectively. While the multifamily market saw a modest 3.0% increase in rent from Q1, the average rental rate remains around $1,250 per month. Overall, the market is expected to continue its recovery in the second half of 2022.
Houston's Office Market's Rise and Tight Submarkets
Houston's office market showed promising growth in Q2 2022, with rents increasing by 3.5%. Downtown and Westchase emerged as the tightest submarkets, boasting vacancy rates of 10.4% and 11.6% respectively. Greenspoint had the largest sublease availability, with 3.1 million square feet of space. The CBD witnessed the strongest growth, with rents increasing by 3.6%. Suburban markets experienced more modest growth, with average rents increasing by 0.9%.
Houston's Retail Market Thrives
The second quarter of 2022 brought positive news for Houston's retail market. Average rents grew by 3.5%, and the average cost per square foot reached approximately $22.50. The market is expected to sustain this growth in the second half of the year, with an estimated 5% increase in average rents and an upward trend in the average cost per square foot.
Houston's Industrial/Warehouse Market Sees Continuous Growth
Houston's industrial/warehouse market also experienced a robust second quarter in 2022. Rents grew by 3%, with the average cost per square foot reaching around $13.00. The market is projected to remain strong for the rest of the year, with rents forecasted to grow by 2%. Additionally, the average cost per square foot is expected to increase by year-end.
Non-residential Construction Forecast
Non-residential construction activity in Houston is set to maintain its strength throughout 2022. The value of non-residential construction is expected to grow by 4.0%, following a 5.5% increase in 2021. The office and industrial sectors are predicted to experience the most significant gains, while the lodging and retail sectors are expected to see more modest growth. Commercial floor space under construction is also projected to increase by 3.0% in 2022, after a 5.5% increase in 2021.
Residential Construction Forecast
The Houston residential construction market is anticipated to continue its expansion in Q2 2022, with an estimated value of $4.6 billion and a total floor space of 8.9 million square feet. This represents a 7% and 11% increase, respectively, compared to Q1 2022. The single-family sector is expected to drive most of the growth, with a projected 9% increase in value and 13% increase in floor space. The multifamily sector is also expected to see growth, albeit at a slower pace, with a 5% increase in value and 8% increase in floor space.
Average Cost Per Square Foot Trends
In Q2 2022, the average cost per square foot of commercial real estate in Houston grew by 3.5%. This consistent upward trend was observed since the first quarter when commercial rents increased by 2.1%. While inflationary pressures and slowing capital markets may moderate some of this growth, businesses' relocation and expansion into Houston are expected to maintain the market's upward trajectory. The average cost per square foot for office space in Houston now stands at approximately $32.50.
Trend Summary by Class: Office vs. Retail vs. Industrial/Warehouse
In Q2 2022, Houston's office market performed on par with the retail market and surpassed the industrial/warehouse sector. Office and retail rents grew by 3.5%, while industrial/warehouse rents increased by 3%. The average cost per square foot was $32.50 for office space, $22.50 for retail space, and $13.00 for industrial/warehouse space. As businesses diversify their supply chains and expand operations in Houston, the market is expected to continue growing throughout the second half of the year.
Impact of Uptown Development in Houston
Uptown development is reshaping Houston, revitalizing the area, attracting new businesses and job opportunities. The increased foot traffic has driven up commercial rents by 5% since the project's inception. Market experts expect this growth to continue steadily for the remainder of 2022.
Takeaways for Houston Commercial Real Estate Investors
Commercial real estate in Houston has had an exceptional year thus far. Rents increased in Q2 2022, along with the average cost per square foot. Despite these upward trends, the market remains favorable for investors throughout 2022. However, it is advisable to conduct thorough research and exercise due diligence. As inflationary pressures increase and interest rates rise, the growth rate may moderate. Nevertheless, with more businesses relocating and expanding in Texas, Houston's commercial real estate market is expected to continue flourishing.
Methodology
All figures presented in this article are based on MyEListing.com's commercial real estate listing data in collaboration with other publicly available data and information related to the commercial real estate industry.
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